CTU Economic Bulletin No. 45

Februray, 2004

Comment

Talk of policy U-turns, economic hard-landings, and racial division are inevitably diverting attention from the key themes of Government policy development and implementation over the past few years. Although not always clearly articulated, the overall direction is based on sustainable development - a sharp contrast to both National and the 1984-90 Labour Government. Sustainable development means that economic growth is vital - but should be the sort of growth that leads to jobs, and decent ones at that. But the growth also has to deliver wider social benefits and not unduly harm the environment. It also has to take account of cultural factors. Sustainable development is not just about measuring success across a range of outcomes. It is also about and ensuring a future for the next generation - and, importantly, it is also about process. An inclusive approach is essential.

Contrast this with what National and Don Brash stand for. It is the same tired old message of doing the bidding of business interests and then waiting for them to share the benefits of higher profits. In the past, this prescription has meant that wealth did not trickle down - it trickled up and flooded out of the country. And there is no concern for the future - which is why assets were sold, and vital infrastructural needs ignored. It was all about short-term profit. Brash is already on record as advocating: removal of the new 4 weeks annual leave provisions, scrapping the ERA, scrapping the minimum wage, dropping all benefits (for the able-bodied), queuing for work outside the Post Office, removal of right of appeal against dismissals, tax cuts for those on the highest incomes and on it goes. So behind the mask of statements such as treating people "according to need", there is a policy programme that would be devastating for workers.

Meanwhile, the combination of a high dollar, the impending end of many favourable hedging arrangements, lower immigration, and higher than necessary interest rates is likely to slow the economy by next year. However, the Government's welfare package for this year's Budget is likely to boost domestic spending, improve labour market participation, and be "countercyclical" by softening the impact of an export-sector driven downturn. Some economic commentators are predicting a "hard landing" for the economy next year ameliorated by the Budget to end up with 2% growth, job creation down to 10,000 from 50,000 or so a year, and inflation in the 1.5% to 2% range.

Economic Snapshot

This is a snapshot of key indicators for unions. Consumer prices rose by 0.7% in the December 2003 quarter and were up by 1.6% overall in 2003. Food prices fell by 0.2% in the January 2004 year. Unemployment is at 4.6%. Meanwhile, ordinary time wages as measured by the Quarterly Employment Survey for December 2003 were up annually by 2.7% in the private sector and 4.6% in the public sector. The Labour Cost Index (December 2003) showed private sector wages up 2.1% for the year, and public sector by 2.8%. The key statistic for unions to note probably is that the LCI shows that for those firms where there were wage increases in the last measured quarter, the average rate of increase was 3.9% and the median increase was 3%. Economic activity (GDP) increased by 1.5% in the September 2003 quarter and 3.9% for the September 2003 year. The official cash rate set by the Reserve Bank is 5.25%.

Wages

Ordinary time hourly earnings (Quarterly Employment Survey) in the December 2003 quarter were up by 1% and in the December 2003 year were up by 3.3% with private sector hourly earnings up by 2.7% and public sector by 4.6%. The average ordinary time hourly rate is $19.78. The public sector ordinary-time hourly rate is $24.62 compared with the private sector where the average is $18.49. The female average ordinary hourly rate of $18.10 was 85.3% of the male average of $21.21. The Labour Cost Index shows that on an annual basis, salary and wage rates (including overtime) were 2.4% higher than in the December 2002 quarter. Private sector salary and ordinary time wage rates rose 0.6% in the December 2003 quarter, and were 2.1% higher than in the December 2002 quarter. Public sector salary and ordinary time wage rates rose 0.7% in the December 2003 quarter, and were 2.8% higher than in the December 2002 quarter. Of the salary and ordinary time wage rates that rose in the December 2003 quarter, the average increase was 3.9%. The average increase (for those workers who got an increase) for the December 2003 year was 4.4% and the median was 3%. Deutsche Bank noted that "On balance, wage growth has shown no clear trend over recent quarters. Given the long lag - almost two years - between changes in labour market tightness and resulting changes in wage and salary growth, this is not surprising. Rather, any additional pressure on employee compensation is most likely to show up later this year at the earliest. That pressure may be accentuated in 2005 as inflation begins to rise (as the downward impact on consumer prices from past currency appreciation begins to moderate), thus reducing the real benefits of the current level of nominal wage growth. From an employers cost perspective, unit labour costs are currently rising by around 1.5% to 2% depending on how this is measured."

Minimum Wage Increase

The low paid receive a 5.9% pay increase from 1 April, following changes to the minimum wage. These changes affect nearly 30,000 workers. The minimum wage will rise to $9.00 an hour for workers aged 18 or over and to $7.20 for 16 and 17 year olds as well as trainees. Meanwhile the federal minimum wage in Australia is $11.80 (about $13.35 in NZ dollars).

Unemployment

Unemployment is at 4.6%. This is 93,000 unemployed. This is a slight increase in the unemployment rate. However those underemployed fell from 104,300 to 99,500. The number of jobless increased to 166,000. Pakeha unemployment is at 3.2% compared with Maori at 10% and Pacific Peoples at 8.8%. Employment is up by 2.7% in the last year with full-time employment up by 3.1% and part-time employment by 1.2%. The Government noted that "demand for labour remains very strong, as reflected in measures of skill and labour shortages. However, this demand was met by an increase in hours worked, a significant shift from part-time to full-time employment and a reduction in recorded underemployment to its lowest since 1990, rather than a move from unemployment into employment. Nevertheless in the year to December 2003, the number of employed increased by 51,000 and the number of unemployed decreased by 4,000."

Average number of workers per workplace

Previously I have advised you that although 97% of firms employ fewer than 20 workers, 57% of full-time equivalent workers are employed by firms with 20 or more workers. If we look at actual employees rather than full-time equivalents, and bring in the public sector, then we still see that most workers are either in firms of 20 or more or in the public sector. The MED publication on SMEs (small and medium enterprises) notes that the total of all "businesses" in the public and private sector is 281,338 enterprises with 1,467,900 employees. In the public sector there are 3,494 "enterprises" with 250,290 employees. So the public sector average enterprise size is 72 employees. In the private sector there are 277,842 enterprises with 1,217,620 employees. A private sector SME is defined as under 20 employees. There are 270,260 private sector small and medium businesses with 601,390 employees. But the private sector non-SME accounts for 7582 businesses employing 616,230 employees. So, 97% of private sector businesses are defined as SMEs and employ 49% of employees. And 3% of firms are not SMEs and employ 51% of employees. And there are also 250,000 public sector workers with an average "enterprise" size of 72 workers.

Housing

House prices rose by 21.9% on average in 2003. It was not just in Auckland (up by 22%). Nelson prices were up by 41% with 34% in Dunedin and 32% in Napier. The median house price is down slightly to $227,750. There were 30,191 building consents for the year ended January - the highest figure since 1977. The median farm price is $850,000, down from $950,000 in December.

Trade

While exports are rising, imports are rising at a faster rate. The estimated trade deficit for the year is $3,622 million or 12.8% of exports. Imports in the latest results were exaggerated by several aircraft and 19 armoured motor vehicles with a combined value of over NZ$250m. This kept the import trend strong, despite lower prices from the rising NZ$, implying strong volumes growth. Although exports are trending up a bit, for the year ending December 2003, export returns were 8.6% lower than the previous year.

Tourism

The tourist sector supports one in 11 jobs, contributes 9% of GDP and is outstripped only by the dairy sector for export earnings. Last year saw over 2 million visitor arrivals, 3% up from 2002.

Government Finances

The 6-month operating surplus is $3.9 billion for the last half of 2003. This is ahead of forecast - largely due to better returns from the Government Superannuation Fund. Net debt is 14.1% of GDP.

Retail Sales

There was a 0.2% decline in December sales but volumes were up by 1.2% in the December quarter. Sales were up 5.4% in the December quarter compared with the December 2002 quarter.

Migration

In the December 2003 year, there was a net outflow of New Zealand citizens to Australia of 12,000 and a net inflow from the United Kingdom of 1,800. The net outflow of New Zealand citizens to Australia was down by 1,400 (10%) from 13,400 in 2002. Contributors to the net inflow of 46,100 non-New Zealand citizens included China (11,300), the United Kingdom (8,400), India (5,500), Japan (2,400), Australia (2,200), Fiji (1,900) and South Africa (1,600). There was a net inflow of 10,000 migrants who stated an occupation, compared with a net inflow of 7,600 in 2002. Professionals recorded the largest net inflow of 2,400 in 2003, compared with a net inflow of 1,500 in 2002. There were also net inflows of clerks (1,000), managers (900), technicians (900), trades workers (500) and service and sales workers (300).

Producer and capital prices

Producer input prices are down 0.1% and output prices up 1.1% for the year. Electricity is a key factor. Capital goods rose by 0.9% in the December quarter and 1.5% in the 2003 year with construction costs being the main contributor.

Counting sheep

You may be desperate to know that there are 39.7 million sheep, 5.2 million dairy cattle and 4.7 million beef cattle in New Zealand.

For further information contact Peter Conway on 04 802 3816 or peterc@nzctu.org.nz